As many parents of adult children do, I recently offered to help my son manage his mortgage application. And, while I was of course delighted to see everything go through in the end, part of me wished I hadn’t got involved. The bank’s processes were ugly and cumbersome, with seemingly endless paperwork, various mobile portals, and old-world ways of working squeezed on to digital channels.
This experience encapsulates much of the first era of Fintech disruption, which saw products and services that were delivered on paper or in branch move online. This revolution brought existing ways of working into a digital format, but it didn’t look at the fundamentals and consider whether we could truly do things differently.
Fortunately, we are standing on the cusp of Fintech’s second major wave of disruption – and this one is going to be the real game-changer. Products, processes and ways of working are designed for digital and, crucially, have payments technology embedded in the user experience from start to finish.
If you call an Uber, for example, you never think about the payment – you just request a ride, get in, and get out. It’s completely frictionless. Why, then, can we not have that experience in everything we do? When online shopping, sites typically ask me for different information, deliver varying experiences, and operate payments in a range of ways. As a consumer that’s frustrating, often confusing, and encourages me to take my money elsewhere.
Extrapolating services like payments and re-bundling them into the tech stack will help consumer-facing companies overcome many of these issues and provide a far better experience to their customers. Digital wallets will be at the heart of this change. They are the enabling technology that will allow payments to sit in the background, independent of the banking system, making everything more seamless.
The situation we find ourselves in with Covid-19 will undoubtedly put paid to some ways of working and accelerate other trends. There is evidence that the pandemic is increasing the volume of shopping carried out online in many markets, but it’s too early to say exactly what impact this will have on payments.
What we can be sure of, however, is that this will all play into the three main trends we’re currently seeing across the global payments landscape. To be successful in the years ahead, any business dealing with payments must understand these trends and their potential impact:
Fintech is now a crowded space and weaker players will undoubtedly either drop out of the market or be bought by larger rivals. In part, this is happening because companies usually become less innovative the more users they take on. Customers are inherently conservative beasts and their needs and expectations can hold businesses back from exploring new revenue streams.
This, combined with Fintech’s high number of integrators, points to consolidation. There are only so many bites of the apple when it comes to making money in the payments process, especially with low interchange and interest rates. This is why the likes of Visa and Mastercard are in the virtual wallet business now, using Fintech brands like Revolut as their interface. Expect to see the big players make more moves here over the coming years as the virtual wallet ecosystem grows and industry consolidation takes place.
Payments networks like Ripple and digital currencies like Libra are providing alternative methods of moving money, and there are benefits and disadvantages to going down this route. They’ll suit some businesses’ goals given they are built from the ground up digitally and they throw away the existing network, but the flipside of this is that they could take years to achieve critical mass.
The real substitution is removing the need for banks to be part of the payments equation at all. Wallets will scale so that they take care of every need a user could have without ever directly interacting with a bank in a way we would currently recognize, providing a seamless experience from start to finish.
3. Shift in the value proposition
We don’t know exactly what the payments landscape will look like in five years, but it will certainly be very different to today. There will be fewer players making money in different ways – however, you generate revenue in 2020, it’s going to become progressively invalid.
Virtual wallet operators, therefore, have more options than many other businesses in the Fintech space. As commission and payment fees decline, wallets will be able to use the data they collect to create new services and revenue streams, selling unbundled products to the bigger financial firms or building cost-effective bundles for the more niche players.
What’s most important, though, is that the virtual wallet will be the catalyst for this second wave of Fintech disruption. The key developments in this space over the next five-or-so years are going to have the virtual wallet at their heart.
Whether that’s consumer products – like my son’s mortgage application, the definition of a process in desperate need of disruption – or a small-business-oriented wallet that sits outside the banking system, the wallet concept will embed technology in products and services to provide a seamless customer experience.